A bond's interest rate sensitivity can be measured by their duration. My knowledge in this area is rather limited, but duration is sort of the length of time to recover the investment, so duration is related to the maturity of the bond and the coupon rate you received. Increasing maturity will increase duration. Decreasing coupon rate will increase duration, etc.
TIPS have a lower coupon rate than nominal, but they also have an inflation adjustment. Are TIPS less sensitive to interest rate? Is the inflation adjustment used in the duration calculation. I am curious if say Treasury bond fund has a duration of 5 years, and TIPS has a duration of 5 years. Are the bonds in TIPS typically longer in maturity?
TIPS have a lower coupon rate than nominal, but they also have an inflation adjustment. Are TIPS less sensitive to interest rate? Is the inflation adjustment used in the duration calculation. I am curious if say Treasury bond fund has a duration of 5 years, and TIPS has a duration of 5 years. Are the bonds in TIPS typically longer in maturity?
Statistics: Posted by gavinsiu — Sat Mar 23, 2024 8:17 am — Replies 3 — Views 183